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1.Market Observations, 8.Was Sticky

20 Oct 2016 9AFR) – Black Monday anniversary a warning of coming small cap crash

(20 October 2016, AFR, p26, by Philip Baker)

‘It’s been a shocker. The Australian sharemarket has consistently underperformed the US market since the 1987 crash. Or so the popular theory goes. It’s now been 29 years since Black Monday, October 19, 1987, wiped out a generation of corporate cowboys.’ <snipped…>

‘Although it was Tuesday, October, 20, here when the local share market opened 25 per cent down on its previous close it was still an historic event that meant the end of Bond Corporation, Rothwells, GPI Leisure and Qintex. Since then the All Ords has made its way to around 5515 from 1596, a gain of close to 245 per cent, while the Dow Jones over the last 29 years has risen to 18161 from 1738, a gain of close to 944 per cent.’ <snipped…>

‘Bell Potter’s Richard Coppleson has done the numbers to include those all-important dividends and it shows the local market is not that far behind the gains made on Wall Street. … On his numbers, once the dividends have been included, the All Ordinaries Accumulation Index is up 1284 per cent, compared to the S&P500 that is up 1355 per cent.’ <snipped…>

‘Fast forward to today and investors are still trying to pick winners. This time it’s in the small-cap space. Small caps have outperformed their big-cap brethren over the past two years but the amount of trading going on at the small end of town is starting to worry some analysts. According to the Coppo Report, the size of the Small Ords, or its market cap, is not quite 10 per cent of the total sharemarket – but the value traded in small caps this year is close to 17 per cent.’ <snipped…>

‘The last time small caps were being traded as much as they are now was back in 2000, just ahead of the tech wreck and again in 2007, just before the GFC. The whole small-cap party will probably continue for a little longer but it will end, eventually.’

Read the full article at AFR.com (might need AFR login access, or try: AFR.com/trial)

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